Allied Capital reopens amendment discussions on revolver, private notes

By Jennifer Chiou

New York, Jan. 28 - Allied Capital Corp. announced that it reopened discussions with the lenders under its revolving credit facility and the holders of its outstanding private notes.

Based on current estimates of asset values as of Dec. 31, the company said that it believes its asset coverage ratio will be less than the 200% that is required under the revolver and the private notes.

As a result, Allied Capital said it plans to seek relief under the relevant terms of both the revolver and the private notes.

Under the current terms of the credit facility and the four separate issues of private notes, failure to satisfy the minimum 200% asset coverage ratio would constitute an event of default, the company said.

In addition, if Allied does not maintain a minimum 200% asset coverage ratio, it would be precluded from declaring dividends or other distributions to its shareholders.

The company said it also currently expects that it will not be able to complete the process of granting a first-priority lien on its assets under the revolver and the private notes by Friday, which, absent an extension from the lenders and noteholders, would result in an event of default.

According to a Dec. 31 news release, previous amendments to the revolver and the private notes increase the interest rate of the private notes by 100 basis points and increase the applicable spread on any borrowings made under the revolver by 100 bps. In addition, these amendments required a 50 bps amendment fee.

Also, under the amendments, Allied Capital may not prepay, redeem, purchase or otherwise acquire any of its currently outstanding public notes prior to their stated maturity.

The amendments also reduce Allied Capital's capital maintenance covenant to the greater of $1.5 billion and 85% of consolidated adjusted debt.

The changes also reduce Allied Capital's interest charges coverage ratio covenant, determined as of the last day of each fiscal quarter for the period of four consecutive fiscal quarters, to 1.4 to 1 for the fiscal quarter ended Dec. 31 and each fiscal quarter thereafter to and including the fiscal quarter ending Dec. 31, 2009; 1.6 to 1 for the fiscal quarter ending March 31, 2010 and each fiscal quarter thereafter to and including Dec. 31, 2010; and to 1.7 to 1 for the fiscal quarter ending March 31, 2011 and each fiscal quarter thereafter.

The amendments add new covenants that require Allied Capital to grant to the private noteholders and the revolver lenders a first-priority lien on substantially all of its assets no later than Friday and to maintain a ratio of consolidated total adjusted assets to secured debt of not less than 2.25 to 1, the prior release noted.

Also, prior to Dec. 31, 2010, Allied Capital will be required to limit the payment of dividends to a maximum of $0.20 per share per fiscal quarter and will be restricted from purchasing, redeeming or retiring any shares of its capital stock or any warrants, rights or options to purchase or acquire any shares of its capital stock for an aggregate consideration in excess of $60 million.

Bank of America is the lead agent on the revolver.

Washington-based Allied Capital is a business development company.

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